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					            PP 7767/09/2011(028730)
Malaysia
                                                                                                                                             RHB Research
                                      Corporate Highlights                                                                                   Institute Sdn Bhd
                                                                                                                                             A member of the
                                                                                                                                             RHB Banking Group
                                                                                                                                             Company No: 233327 -M

                                      Co mpa ny Updat e
                                                                                                                                       17 January 2011
            MARKET DATELINE


                                      VS Industry                                                          Share Price
                                                                                                           Fair Value
                                                                                                                            :
                                                                                                                            :
                                                                                                                                                        RM2.11
                                                                                                                                                        RM2.44
                                      Moulding Up                                                          Recom            :                       Outperform
                                                                                                                                                     (Upgraded)


    Table 1 : Investment Statistics (VS; Code: 6963)                                                                                         Bloomberg: VSI MK
                                                      Net                   Core        EPS                                            Net
                                      Turnover       Profit       EPS       EPS#     Growth#       PER#      C.EPS*     P/NTA       Gearing         ROE          GDY
    FYE
                                      (RMm)         (RMm)        (sen)     (sen)        (%)         (x)       (sen)       (x)          (x)          (%)          (%)
    Jul
    2010                               800.2          24.3        13.6      19.7       (44.5)       10.7        -         1.3          0.3           9.6          4.1
    2011f                              908.4          51.9        29.0      29.0        47.5         7.3        -         1.4          0.2          13.3          7.4
    2012f                              1,073.0        66.6        37.3      37.3        28.4         5.7        -         1.4          0.2          15.7          9.2
    2013f                              1,198.3        76.1        42.6      42.6        14.2         5.0        -         1.3          0.1          16.2         10.1
    # Excludes exceptional items
    Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC                                                * Consensus Based On IBES Estimates

  ♦   Vacuum cleaners…now bladeless fans. According to VSI, orders for Dyson
                                                                                                                       Issued Capital (m shares)                179.7
      vacuum cleaners have already exceeded internal expectations. While the                                           Market Cap (RMm)                         379.2
      segment has been the bread and butter (contributing around 70% of total                                          Daily Trading Vol (m shs)                   0.3
      revenue in FY10), we understand that VSI recently secured orders for the                                         52wk Price Range (RM)                1.13-2.23
      supply of Printed Circuit Board Assembly (PCBA) for Dyson latest invention, the                                  Major Shareholders:                       (%)
      Air Multiplier Bladeless Fan. A key component for the functionality for the                                      Beh K.L & Gan C.C                         31.0
      device, it utilises VSI’s key expertise of surface mounting technology (SMT). We                                 Gan S.Y & Ling S.M                          7.9

      believe this gives VSI the competitive edge over competitors and could
                                                                                                                       FYE Jul               FY11    FY12       FY13
      potentially lead to orders for the complete assembly of the fan.                                                 EPS chg (%)           +3.1    +9.5       +9.2
  ♦   Going “Green” with Atlantis. VSI recently secured a contract to produce                                          Var to Cons (%)        -         -          -
      components for an international leading water management solution company
                                                                                                                      PE Band Chart
      based in Australia. We understand that these are considered “green” as the
      components are entirely based on high quality                                     recycled materials i.e.
                                                                                                                                PER = 12x
      polypropylene. In addition, these management solutions offer a more efficient                                             PER = 9x
                                                                                                                                PER = 6x
      alternative application used in drainage systems for rail, stormwater and sub-
      surface water dispersal requirements (e.g. golf courses and sports field).
      Already, production volume stands at 30-40 units per month. We believe this
      would contribute RM10-15m revenue p.a. and potentially could be a key
      earnings driver in the longer term.
  ♦   Risks. Key risk is deterioration in the global macroeconomic environment,                                       Relative Performance To FBM KLCI
      which would lead to a slowdown in consumer spending and demand for
      consumer electronics.
                                                                                                                                                  VS Industry
  ♦   Forecasts. We are raising our FY11-13 revenue assumptions by 1.6%, 3.6%
      and 0.1% respectively to impute: 1) higher PCBA sales for Dyson’s Bladeless
                                                                                                                                       FBM KLCI
      Fans; and 2) new revenue stream for its water management products.
      Furthermore, we expect margins to expand on the back of rising utilisation rate
      and higher-margin segments i.e. mould fabrication in addition to cost-plus
      margins, which would be more than enough to offset rising raw material costs.
      Subsequently, our FY11-13 net profit forecasts have been raised by 3.1%,
      9.5% and 9.2% respectively.
  ♦   Upgrade to Outperform. VSI has pleasantly surprised us with stronger-than-
      expected orders as well as faster-than-expected roll-out of new products; which
      we had not factored in our forecasts. Going forward, we believe that VSI’s
      outlook looks promising as it rides on improving consumer demand as well as
      its proficiency to gain new customers. Following the upgrade in earnings, we                                            David Chong, CFA
      have raised our fair value to RM2.44/share (from RM2.30/share) based on                                                  (603) 92802166
                                                                                                                          david.chong.@rhb.com.my
      unchanged 7.5x CY11 EPS and correspondingly upgraded our recommendation
      to Outperform (from market perform).



                                                                                                                                                            Page 1 of 5
                 Please read important disclosures at the end of this report.

                                      A comprehensive range of market research reports by award-winning economists and analysts are exclusively
                                      available for download from www.rhbinvest.com
                                                                                                                      17 January 2011




♦    Vacuum cleaners…now bladeless fans. According to VSI, orders for Dyson vacuum cleaners have already
    exceeded internal expectations. While the segment has been the bread and butter (contributing around 70% of
    total revenue in FY10), we understand that VSI recently secured orders for the supply of Printed Circuit Board
    Assembly (PCBA) for Dyson latest invention, the Air Multiplier Bladeless Fan. A key component for the functionality
    for the device, it utilises VSI’s key expertise of surface mounting technology (SMT). We believe this gives VSI the
    competitive edge over competitors and could potentially lead to orders for the complete assembly of the fan.
♦   Going “Green” with Atlantis. VSI recently secured a contract to produce components for an international leading water
    management solution company based in Australia. We understand that these are considered “green” as the components
    are entirely based on high quality recycled materials i.e. polypropylene. In addition, these management solutions offer a
    more efficient alternative application used in drainage systems for rail, stormwater and sub-surface water dispersal
    requirements (e.g. golf courses and sports field). Already, production volume stands at 30-40 units per month. We believe
    this would contribute RM10-15m of revenue p.a. and potentially could be a key earnings driver in the longer term.




 Figure 1: Water Management Solutions
 1. Water management used in residential area                         2. Water drainage system used in golf courses




 Source: Atlantis




♦   Strong sales for automated meter reader. Going forward, VSI also expects stronger sales for its power meter
    products as it already has locked-in a new customer. We are positive on this latest development as it helps
    reinforce VSI’s ability to produce technologically-advanced equipment. In addition, we understand that its current
    customer for the segment, Itron, is the leading power management provider in Europe, while its newly acquired
    customer is a market leader in Oceania. We estimate this segment to contribute RM60m and RM77m of revenue in
    FY11 and FY12 respectively.

♦   Raising our dividend forecast. We are raising our net dividend payout assumptions to 45% p.a. (vs. 40%
    previously). This is at the upper end of VSI’s dividend payment range of 44.9-48.1% in recent years (save for
    FY09: 29.3%) and translates to gross dividend yields of 7.4-10.1%.



Risks


♦   Risks to our view. Key risk is deterioration in the global macroeconomic environment, which would lead to a
    sharper-than-expected slowdown on consumer spending and demand for consumer electronics.




                                                                                                                                Page 2 of 5


                    A comprehensive range of market research reports by award-winning economists and analysts are exclusively
                    available for download from www.rhbinvest.com
                                                                                                                    17 January 2011



Forecasts and assumptions



♦   Forecasts. We are raising our FY11-13 revenue assumptions by 1.6%, 3.6% and 0.1% respectively to impute: 1)
    higher PCBA sales for Dyson’s Bladeless Fans; and 2) new revenue stream for its water management products.
    Furthermore, we expect margins to expand on the back of rising utilisation rate and higher-margin segments i.e.
    mould fabrication in addition to cost-plus margins, which would be more than enough to offset rising raw material
    costs. Subsequently, our FY11-13 net profit forecasts have been raised by 3.1%, 9.5% and 9.2% respectively.



Valuations and recommendations



♦   Upgrade to Outperform. VSI has pleasantly surprised us with stronger-than-expected orders as well as faster-
    than-expected roll-out of new products; which we had not factored in our forecasts. Going forward, we believe that
    VSI’s outlook looks promising as it rides on improving consumer demand as well as its proficiency to gain new
    customers. Following the upgrade in earnings, we have raised our fair value to RM2.44/share (from RM2.30/share)
    based on unchanged 7.5x CY11 EPS and correspondingly upgraded our recommendation to Outperform (from
    market perform).



 Table 2. Earnings Forecasts                                            Table 3. Forecast Assumptions
 FYE Jul (RMm)         FY10a       FY11f      FY12f      FY13f          FYE Jul                             FY11F      FY12F    FY13F


 Turnover                800.2      908.4     1,073.0    1,198.3        Vacuum cleaner:
 Turnover growth (%)       (3.6)      13.5       18.1       11.7        - sales volume growth (%)            15.0       14.0     13.0
                                                                        - % chg in ASP                        0.0       0.0       0.0

 EBITDA                    84.9     100.2      120.7      134.0
 EBITDA margin (%)         10.6       11.0       11.2       11.2


 Depreciation             (28.2)     (28.7)    (29.8)     (30.9)


 EBIT                      56.8       71.6       90.9     103.1
 EBIT margin (%)            7.1        7.9        8.5        8.6
 Net Interest              (5.4)      (6.7)      (6.4)      (6.0)
 Associates                (3.6)       5.0        5.0        5.0
 Exceptionals             (10.9)       0.0        0.0        0.0
 Pretax Profit             36.8       69.9       89.5     102.1
 Tax                      (13.3)     (17.5)    (22.4)     (25.5)
 Minorities                 0.8       (0.5)      (0.5)      (0.5)
 Net Profit                24.3       51.9       66.6       76.1
 Core Net Profit         35.2       51.9         66.6       76.1
 Source: Company data, RHBRI estimates




                                                                                                                               Page 3 of 5


                   A comprehensive range of market research reports by award-winning economists and analysts are exclusively
                   available for download from www.rhbinvest.com
                                                                                                                  17 January 2011



Appendices

      Appendix 1: Dyson’s Bladeless Fans




      Source: Dyson, Telegraph UK




                 Appendix 2: Installation Of Water Tank Solution
                 1. Excavation and Leveling                           2. Install Liner for Water Retention




                 3. Installing Matrix/Flo-Tank modules                4. Backfilling




                 Source: Atlantis




                                          Appendix 3: Smart Power Management Meters




                                          Source: Itron




                                                                                                                             Page 4 of 5


                 A comprehensive range of market research reports by award-winning economists and analysts are exclusively
                 available for download from www.rhbinvest.com
                                                                                                                                               17 January 2011




IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer,
invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an
interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular
investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend
on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or
damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group
may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of
any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services
from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over
a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities,
subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.




                                                                                                                                                             Page 5 of 5


                       A comprehensive range of market research reports by award-winning economists and analysts are exclusively
                       available for download from www.rhbinvest.com

				
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